Rise in build to suit developments in East Midlands

15/08/2014

The number of enquiries for build to suit developments in the East Midlands industrial market has risen sharply.

LSH's 2014 H1 industrial and logistics review reveals that the region’s key commercial sites are now all promoting build to suit opportunities in the absence of speculative development.

Geoff Gibson, Head of Office at LSH in Leicester, said the trend across the region is also being fuelled by the lack of availability of grade A properties, as well as a dearth of big sheds, with the majority of the large-scale premises now under offer or occupied.

“The scarcity of good quality buildings is behind the rapid growth of interest in the build-to-suit market in the region,” he said, “but the fact that the market isn’t yet ready for speculative development has also helped to invigorate interest in it.”

The only large-scale speculative development in the East Midlands currently underway is the building of 165,000 sq ft at Hinckley Commercial Park, known as Hinckley 165, which is due for completion in November this year, explained Geoff.

“There is nothing else like this being planned, although we could see some smaller scale building schemes,” he said. “The lack of speculative development means that developers are working closely with local authorities so that sites can be fast-tracked through the planning process.

“This is particularly important when large occupiers want to move to a premises quickly because it helps to remove unnecessary hold-ups. Once speculative development resumes, we can expect to see landlords commanding bold rents on these new-builds.”

Sean Bremner, Director of Industrial and Logistics in Nottingham predicts that capital values on existing stock will plateau and may even decline slightly when speculative building resumes. Most commercial property activity is now in the modern second-hand sector but Sean warned that the fall in quality of accommodation is likely to lead to occupiers demanding greater flexibility in their lease terms.

Significant transactions H1 2014

Among the most significant transactions in the first half of 2014 is Goodman’s letting of more than 627,000 sq ft to Kuehne & Nagel Drinkflow Logistics Ltd (K&N) at Derby Commercial Park, which was completed in the spring.

Other substantial deals include Eurocell’s continued occupation in 267,000 sq ft at Kirkby-in-Ashfield and DHL’s acquisition of 255,000 sq ft at Langley 255, an industrial estate in Langley Mill, Nottingham.

The region has few good quality industrial buildings above 50,000 sq ft, which has led to the promotion of build-to-suit options with a turnaround of 35-40 weeks. The main sites across the region that are offering such accommodation are those that have easy access to the M1: East Midlands Development Council (EMDC), Derby Commercial Park, Optimus Point, Summit Business Park, Castlewood and Markham Vale.

The first six months of 2014 has also seen incentive packages shifting in favour of landlords.

“Investment in fit-outs may be disguising the incentive package but it is now fairly common for landlords to negotiate favourable terms for them; six months rent-free on a 10 year lease is certainly not unusual,” added Sean.